(Bloomberg) -- US Bank is issuing $2.5 billion of credit-linked notes tied to a pool of auto loans.

It’s the first time US Bank has sold this type of securitization, according to a preliminary ratings report by Moody’s Investors Service. The notes effectively allow the issuer to transfer credit risk tied to the underlying loans over to investors. 

Credit-linked notes have grown in popularity recently as new capital rules set to be imposed as part of forthcoming Basel III regulations prompt banks to look for ways to optimize their balance sheets. As part of the deal, US Bank, which finances vehicle purchases across the country through a network of dealerships, is transferring the credit risk on a pool of more than 97,000 auto loans while still keeping them on its balance sheet. The debut deal is selling approximately $289 million of bonds to investors.

“I think every bank is likely looking at risk transfer options right now,” said Missy Dolski, global head of capital markets at Varde Partners. “You now have the outlook from regulators on what Basel III Endgame is going to look like, and banks are under pressure to optimize their balance sheets.”

Rival Santander is a regular issuer of auto credit-linked notes, although its deals have tended to be much smaller. It most recently issued $115.5 million of auto credit-linked notes in June. 

US Bank took another step to optimize its balance sheet earlier in the year when it effectively sold a portfolio of high-quality auto loans to Bayview Asset Management, which then used those loans as collateral for a series of auto ABS, including one of the largest ever single auto ABS deals.

--With assistance from Charles Williams.

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